Freeman Blog

Mark Freeman & Associates was established by Mark Freeman to bring together a number of trusted associates who could offer charities sound professional and practical advice for trustees and senior management.
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“The first rule in investing: don't lose any money. The second rule: don't forget the first rule.”Warren Buffett

Another unfortunate story (remember Panorama and Comic Relief?) has come to light this week about an international Christian charity that failed to safeguard its assets when it came to investment management. The Charity Commission has been investigating this charity since 2011 because one of the trustees was allowed to invest £5m of the charity’s assets “in the financial markets through potentially high risk speculative foreign exchange trades, without independent professional advice”!

The trustee in question resigned and has subsequently been declared bankrupt. The trustee board has tried to get the funds returned, however it has become apparent that the funds will not be fully recovered.

Whilst it is tempting to leave the decision of what and how to invest charitable assets with a trustee who claims to have sufficient investment management experience (we know that getting into the detail of investment management is not everyone’s cup of tea), it is the obligation of each and every trustee to ensure that they are fully confident they know and understand the decisions being made.

A key part of every trustee’s responsibility is to see that independent financial advice has been taken, and to seek reassurance that the charity’s assets are being appropriately invested, at a level of risk that is acceptable to the aims and objectives of the organisation.

“If trustees have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions or adopting a particular investment policy.”

Unfortunately in the case of the Christian charity, they do not appear to have followed these rules, nor taken independent advice and therefore did not perform their role as trustees. The loss of funds and services to their beneficiaries, not to mention the disruption an inquiry causes to the charity, its staff and trustees is quite considerable, when all that was required was for trustees to fully appreciate and perform their fiduciary responsibility.

Trustees – if you do only one thing for your charity today, download CC14 and make it your bedtime reading. If you don't you may well come to regret it!

Over the last few months the markets have reacted violently to the good news about quantitative easing being tapered or stopped by dropping significantly, only to then increase significantly when bad news provides the rationale for QE not to be turned off at all!

The thing that should really surprise us all with this talk of good and bad news is…

… no one is talking about the next potential correction in the markets.Look at the US market - it reached its all time high in the first week of November; the FTSE is up 22% over the past year and 60% over the past five years!Both are just about to or have surpassed the 2008 highs.

The other interesting thing about the past five years is that no one has come up with a solution for cash – in fact investment managers steered clear of it because of the limitations on what they could do with it.The result of all of this is that over the past two years cash has been pumped into the equity markets, resulting in the increases that we have seen.

Perhaps it is time to start increasing cash in the event of the next market downturn?Some may say that the downturn won’t happen for some time, therefore make hay whilst the sun shines!Wasn’t that what was said in 2007 before the crash of 2008?(Interesting that some investment managers are now talking about cash solutions).

With markets so high, our view is that organisations should now be considering how much cash they need from their investments over the next two to three years.This may be a combination of income and realisation on investments.Why? So that these funds are now accumulated and put into their so-called “cookie jar” for the rainy day which will inevitably happen. (According to Goldman Sachs this downturn will take place within the next eight years - when is anyone’s guess!)

Once the cookie jar is established it allows an organisation to weather the storm by not having to drawn on investments or rely solely on the potentially lower income streams likely to occur at the same time.

Some will of course say that establishing a cookie jar will cause real value to decline relative to inflation, however when the markets drop inflation is likely to increase rapidly, and keeping up with it will be difficult anyway!In the intervening period giving up a little real value for the certainty definitely makes our clients sleep better at night.

And, if markets take off some will be tempted to raid the cookie jar like Cookie Monster, trying to improve the overall return. The result will all too often be a feeling of immediate satisfaction, followed by that sinking feeling on returning to the cookie jar only to find it empty!

Woodrow Wilson once said, "If you want to make enemies, try to change something." You may have seen the recent controversy over William Shawcross, chair of the Charity Commission and his interview with the Daily Telegraph. He warned that charitable donations destined for places like Syria could fall into the wrong hands – i.e. extremist groups. This was translated into headline news by the Telegraph as “charity millions going to Syrian terror groups”.

Well we all know that the papers like to sensationalise the news - it sells their papers - but what is interesting is the response from writers and those in the charitable sector some of whom see this “controversy” as a reason why Mr Shawcross is unsuitable for the role of chairing the Commission.

I recently attended a seminar where William Shawcross was one of the presenters. He spoke not only of the organisational problems that the Charity Commission faces, but also how the regulator has been criticised by the Public Accounts Committee for “not using their legal powers often enough to suspend/remove trustees”.

There are numerous examples of fraud within the sector – charities set up for tax evasion purposes, excesses around executive pay, and stories about failing charities. And no doubt there are people who will use charities as vehicles for crime, money laundering and terrorism, perceiving them as a soft target, having a regulator with no muscle.

William Shawcross says that he is committed to sorting this out. In his first year at the Commission he has appointed a new board that is going to tighten its approach to serious case work and act more quickly with those charities under investigation.

He is also lobbying to ensure that those who are found to have committed serious wrongdoing will not be able to hold a trustee position again – I didn’t realise that at the moment someone convicted of terrorism or money laundering can still be a trustee!

Mr Shawcross also wants to see a flag against any charity that has its accounts qualified by an external examiner, to highlight those charities where there is something amiss with their financial statements.

So why aren’t we full of praise for these endeavours and supportive of these changes?They will ensure that the confidence we have in the way our charities are regulated is sound and that charities are governed with the same rigour as we would expect to find in the financial services industry, for example.

My view is that change sometimes brings out the worst in people. When someone puts their head above the parapet to act as an agent of change, those with an axe to grind will use any incident to highlight an inadequacy.

But, I suspect the real reason behind the criticism in the Telegraph story is that Mr Shawcross is an outspoken conservative supporter, now operating in an environment that has a heavy social bias. So instead of looking at the big picture, some are more focused on gaining political points.

Very sad, when what we actually need is Mr Shawcross and his team to continue rolling their sleeves up and deliver a regulator that has teeth.

Over the summer it has been interesting to see how the public has reacted to the Wonga scandal that the Church of England found itself in, and has made me think about how we can avoid exposure to Wonga-type scenarios.

As a reminder the Church found that it had, through an indirect holding, 0.001% of the £5.1 billion in Wonga, one of the payday loan providers preying on the most vulnerable in society. The aspects of this which I found most interesting were:

1) it showed that ignorance of any potentially embarrassing holding is not a defence, and frankly never should be

2) the reality is that any organisation is likely to have a similar issue if it holds funds that are in a pooled vehicle and

Dealing with the issues above must be on the agenda of all organisations. I know that we address this with all our clients, but how and where do you start?

Ignorance is not a defence. It’s so important for organisations to understand what they hold in their portfolio, the rationale for it being there and, if it is there, what they should do about it. More easily said than done in some cases!

Face value of your holdings is no longer going to cut it – you will need to delve into the types of companies and into the detail of what they do. Your advisor, working with organisations such as Ethical Screening, can help you.

So, 0.001% is the new threshold for not holding any taboo stock, bond or other investment vehicle. (Let’s face it you’ve probably already breached this threshold now, in the past and most likely into the future without even knowing it!)

To deal with this one, every organisation needs to make a decision about its own acceptable and realistic levels of indirect holdings, and set specific constraints. By this I mean you need to set a limit that can be monitored, managed and revised in relation to global events that unfold over time. This last one is by far the hardest, especially when you have purchased a fund with ethical constraints, which on the face of it meet or exceed your own requirements. The reality is that you will need to revisit those constraints and probe them to understand what they really mean.

Over the summer we have been doing this with our clients’ investment managers, and have found some interesting results. In our discussions a) our clients were surprised at the detailed information about their holdings and b) the investment managers had not thought laterally and considered the implications of the Wonga scenario to the portfolios.

With the escalating tensions in Syria, the Middle East and other parts of the world ruled by despots, all organisations with an ethical policy mentioning armaments must revisit, review and almost certainly make changes to their holdings or the way they have invested.

Over the past quarter we have seen markets rise significantly, inflation is at a three-year low and interest rates remain non-existent, all leading some to suggest that a higher allocation to equities is warranted.

Hmm, don’t we remember a similar situation back in the late 90s which then led on to a significant drop in the market, and the burst bubble of 2001/2? There are those that say that current markets are not the same as then. Really?

Comparing markets now with then does reveal some differences. One is that there is not as much hype and justification now around those share prices not underpinned by hard facts.

However, there is one aspect of the current market which is very similar to the 90s - volatility is back, and this time more so than before.

Just looking at the last few weeks we see it rearing its ugly head, with markets dropping as a result of two events, the unfortunate and tragic events in Boston, and, on the same day, Cyprus selling its gold reserves. Markets were off by nearly 2% then returned towards the end of the week.

So what does this mean for our long-term investment strategies?

As we see it you have two options, one, you stick to your long-term investment strategy and do not waver (though you’ll need nerves of steel as there is likely to be a correction in the next seven to ten years). Or two, you keep your long-term investment strategy as your ultimate goal but also actively manage your asset allocation tactically through this period.

By actively managing the asset allocation we do not mean changing it every quarter, but reviewing it along with your investment manager, and adjusting for the market conditions. It is also well worth considering how to weather the storm when it does happen!

So what is the answer to volatility?

It really does come back to asset allocation, and being prepared to reduce the amount of potential performance in exchange for less of a rollercoaster ride!

One way to do this is by reducing your equity allocation in a rising market. Another is being prepared to act quickly to make changes to the asset allocation as events unfold. Personally, I think it’s easier to reduce now take to take some heat out of a portfolio than to guess when to make dramatic changes.

One thing that is sure however, is that active monitoring of a portfolio is now more than necessary then ever, to ensure that active management can occur!

Over the last few months there have been a number of changes in the way investment managers deal with NGOs - which may possibly not be the best thing for the NGOs! Investment managers have set out their stall proposing changes to the services and products they offer, and some are proposing mergers. “Bigger is better”. I think we’ve heard that before somewhere...auditors, law firms, telecoms, and let’s not forget the banks!

Previous “get-bigger” actions have taught us that services become less focused on the client and more on the bottom line, with less control for the client or the customer, and less access to the individual people that they wish to deal with.

Take auditors for example. Unless you are a super NGO the big four are not interested. Take banking. The promise was better access to services and products. What really happened was that they got so big they didn’t know what was going on with the levels of risk they were taking on. So now there are moves afoot to break up the banks, and let's not get started with what needs to happen to telecoms!

So, coming back to the big investment managers, is getting bigger really a wise thing? What I foresee is that clients will have limited choice unless they have large portfolios, and this arrangement may not meet all needs. We are already seeing that investment managers want to offer a product rather than a service... interesting to see that the industry is following the American model.

At the same time clients will be offered less advice, and investment managers will be dealing increasingly with costly compliance issues - one reason why fees are not going down when economies of scale dictate that they should. You could of course suggest that NGOs will be served better than before as there will be more people doing the same thing ... brings an image of lemmings to mind!

So, what exactly are the options available to the not-so-big NGO investors, or indeed those who want a better service? A “boutique” investment manager dealing with organisations with under £10 billion of assets under management might be one way.

Another is to consider buying funds/products through a dealer such as Hargreaves Lansdown. Why do this when it might cost more? The main reason is flexibility, ease of moving to another fund or using multiple funds as part of the strategy for investing.

The bottom line is that whilst big might be viewed as better, we know from history that David beat Goliath with one stone. My money is on the Davids of the investment world beating the Goliaths on service - and potentially on longer-term returns for clients!

The other week a client was discussing with us the need to update their fundraising strategy – it wasn’t generating enough income for the costs involved.

Their thinking was that investment in a new fundraising strategy should come out of their investment portfolio, also being reviewed at the time.

So, we set about looking at taking say £3 million out of their investments of £10 million and investing it into the fundraising strategy (a logical place to start since they’d been getting only just above zero real return for the last four years!)

The idea was that £3 million was to be invested to return £1 million over a period of 24 to 36 months. Looks like a good deal - 11% return over three years, or say a real return of 8% - much better than the equity markets. However, here’s the crunch…the risk was much higher than the equity markets, with nearly 80% potential that the investment would be lost, or that the time horizon would, as often happens, extend to five or even seven years.

Our client hadn’t considered working their investment portfolio. Had their portfolio been invested like that of other clients we’ve assisted it would have returned 9% per annum - an increase in real value of £4 million over the last four years. Or four times the return of the proposed fundraising exercise!

Even if you take the most pessimistic reports on likely market returns over the next few years the return for a balanced portfolio should be in the region of 6% to 7%, which offers an acceptable combination of risk and diversification, rather than a very focused high risk strategy.

So, how did we resolve it with our client? A two-pronged strategy was agreed. First they decided to restructure their investment portfolio to work harder, and second they opted to take a smaller portion out of the portfolio to invest in the fundraising strategy. Hence a balanced approach to risk and return!

Their fundraising idea is similar that of private equity investment – great if it comes off, but not to be totally relied upon. I just wonder how many more NGOs have missed this approach…to their cost?

Over the last few days I have received a couple of emails from two experienced CEOs that brought bad news. They wrote to me to tell me that within months, their charities would be closing or merging with another organisation, and they would be looking for another position. This isn’t the first time that such news has arrived in my in-box over the last 18 months - it is a story which now seems to be one which is increasing in its regularity.

Supporters, funders and beneficiaries of these two charities would be justified in asking whether the two CEOs and their Boards took unnecessary risks which ultimately led to the demise of their organisations, with the consequent withdrawal or severe reduction of the services and support they offered.

One of the Board’s most important governance responsibilities is to safeguard the organisation’s resources, both human and financial.

Implicit, however, in every act of ‘charity’ is risk, so the concept and understanding of ‘risk’ should be one which is written into the very DNA of every charity, every Board of Trustees, every CEO, every member of staff and every volunteer - but do they all really understand the risks the charity faces and how those risks should be addressed?

One method of communicating the commitment of the charity to take risks but at the same time manage potential organisational threats, is to establish a risk-management policy and embed this into the strategy and activities of the organisation.

By putting a risk-management policy in writing, there will be available to all a statement which reflects the organisation’s mission and purpose, the activities it engages in and the actions that others throughout the charity can take to contribute to the organisation’s risk-management efforts.

The preparation and writing of a risk management policy can in and of itself act as a catalytic discussion for a Board and enable it to reassess the state and standing of the organisation and what the future might hold for it.

Much of what I read about how we manage risk assumes it is a logical activity. And, of course, some of it is but we ignore the influence of our values and our emotions at our peril.

I spend my days working alongside business owners growing their business, and how they perceive and assess risk varies widely – even when they are facing the same risk.

Two things stand out – how they perceive the scale of the upside or downside, and their assessment of whether they can live with the downside. Our values, beliefs and attitudes construct a view of the world and our place in it, which will drive our decision-making and combine into what we describe as our mind-set.

Carol Dweck[1] speaks of two mind-sets emerging – fixed and growth. I believe most of us will fluctuate somewhere along the continuum between the two, rather that be anchored at either end.

Leaning towards fixed suggests fear of failure, and reluctance to change will push you to resist and over-emphasise what is a risk and its downside. You will also doubt your ability to cope with any negative consequences, as they strike right at the heart of your need to be perfect.

A more growth-oriented mind-set tends towards challenge. Risk is not to be feared and you can cope with failure. Set-backs are not devastating but used to reflect and re-define the next stage of action.

So how does your mind-set influence your approach to risk assessment? Are you a worrier or a warrior? Or just growing into your next challenge?

Defining and managing risk is certainly not everyone’s idea of an exciting day at the office, however, it’s an important subject for any charitable organisation. Over time I have come to realise just how important it is to get the balance of risk right.

Too little risk (nice safe haven stuff) and you can run a significant risk in itself – that your charity does not grow or develop its full potential.

Too much of it and you run the risk that you lose everything, or at least, more than is good for you!

So how do we ever get the balance just right?

I’ve found a good place to start is the strategic plan. Trustees’ appetite for risk can be sharpened by focusing on the objectives in the plan. Playing a “what if” scenario will help crystalise the impact of each risk and assess the level of comfort trustees have for risks involved in delivering the plan.

I have had some success running scenario games in trustee meetings involving some of the categories mentioned below. (The exercise may also help trustees judge whether their strategic plan really is bold enough to deliver what the organisation needs to thrive and prosper.)

Have a go at the following areas:

• Solvability, cash flow, fundraising and fundraising volatility

• Reputation and brand recognition

• New products/services, supporter groups or countries

• Acquisitions, mergers or collaboration

• Environmental impact

• Governance and compliance

• Human resources

So I would say, don’t always play it safe – inject a little risk and enjoy the process…and let us know how it works for you!

In many respects 2013 has a large “risk hangover” from 2012, as world problems have been left rather than resolved, but this also presents us with many opportunities.

The start of a new year always brings as many positive thoughts as worries about risks that the future might bring. If we look at the end of 2012, the fiscal cliff came and went but will be back in six or seven weeks, and political issues in Europe, China, the Middle East and Africa are all growing and continue to shout for our attention.

So, what should we learn from 2012? Here are a few key pointers that we live by, and should become your daily approach to risks for 2013:

· Don’t put off till tomorrow what you know you should do today.

· Aim to understand and manage risk, not to ignore it

· Don’t waste time trying to plan for every eventuality, deal with real developments quickly and effectively

· Risk can be good, but be clear about the potential results, good and bad, from the outset

· Keep it simple – the world is complex enough already!

Over the course of the next year we will be focusing on a number of risks that NGOs should be aware of, either in governance, investment strategy, reputation or day-to-day operations. We’ll be looking to spark debates on the best way to handle risk, as well as what to do when the world seems to be turning against you.

We will be opening these debates up on Twitter (a real risk!) and our Facebook pages for you to comment on and feed into the debate, as well as inviting your ideas for topics you would like us to consider in the future. We’ll also be hearing from others who are specialists in a number of areas. Join us!

Finally, we would like to wish all that have been following us and those that are just finding us all the best in 2013 - may it be better than 2012!

Listening to Michael Moritz on Radio 4 last week talking about charitable giving, I was struck by the simplicity of his message.

Michael Moritz, the venture capitalist chairman of Sequoia Capital (and an ex-comprehensive schoolboy from Cardiff) has made an incredible fortune and, now chooses to give huge amounts to charitable concerns.

"I think it is all too easy not to remember those that can be so easily forgotten," he says.

When asked on Radio 4’s Today programme if all those with unimaginable riches have a duty to give money to charity he answered that it wasn’t necessarily a duty but just “feels like the right thing to do”.

It does…and it is.

We don’t all have those stratospheric amounts, but we can all share the sentiment.Let’s choose our favourite charity carefully and each consider giving just the smallest amount.As we know, it all adds up.

From all of us at Mark Freeman & Associates go our wishes for the best of the festive season, and our hopes for the happiest of new years.

In these days when budgets are being squeezed ever tighter and costs are under constant scrutiny many charities must be wondering where on earth they can look next for solutions to these pressures.

I’d say – look in the shed where your Sacred Cows are housed, bring them out into the light and give them a prod. And here’s why.

Who’d have thought that an organisation which supports disabled people could both cut costs and improve people’s quality of life - at the same time? Not me! And I’m the parent of someone with profound and complex disabilities, needing 24 hour support.

A report from the Centre for Welfare Reform gives a most heartening example of Choice Support and Southwark Council working together to look at a hitherto no-go area. People with complex problems such as learning disabilities, epilepsy, incontinence, or challenging behaviours must have staff on duty and paid to be awake all through the night … really? Must they?

The answer is actually no – they don’t necessarily need to. By investing in new assistive technologies, people don’t need to be disturbed by waking night staff.

An amazing range of monitors and alarms, unheard of when my daughter lived at home, is now available and can immediately alert sleep-in staff if a person needs support. Pressure relieving mattresses can be employed to avoid constant disturbance for turning. Support can be given in less intrusive, more cost effective ways, and improved sleep – for everyone – undoubtedly increases health and well-being.

But, the results show that safety was maintained, quality of life was improved and cost savings were made.

Now, this may not be the area that your charity works in, but the encouraging principle to draw from this project is the challenge it makes to the old thinking about risk and entrenched views. If this thinking was more widely adopted, wouldn’t we as tax payers, not to mention parents and carers of disabled people, applaud the effort to get a grip on social care budgets?

I would! I am applauding it!

Come on charities – at your next staff awayday have another look at some of your Sacred Cows and “no-go” areas!

If you put a frog in boiling water it will jump out pretty fast, however if you put a frog into cold water which slowly comes to the boil he remains in the pot, oblivious to the fact he is coming to an end!

How often have you heard the expression "People don't like change"? Too many times? It seems to be the mantra in the charity sector. Many charities remain firmly rooted in the past, proud of their heritage and way of doing things.

However, making change isn’t about removing the good elements of an organisation; it’s about improving it and moving the organisation forward to meet the challenges of the changing environment we find ourselves in. Link Change & Interim Management

If you read last week’s blog you will have noted Mark Freeman throwing rather a lot of numbers around (well he is an accountant, he likes numbers!). Government or organisations sometimes feel they need to throw money at something because it needs to change - and change in a big way.

The reason that charities, and indeed in my experience private companies, get to the point where they need external help is usually rooted in complacency – which, in a constantly changing social, political, economical and technical world is a recipe for trouble!

Complacency can turn good organisations into bad ones. Business schools often cite the example of Marks & Spencer - the dominant high street - retailer losing market share because their senior executives and board felt they were doing everything right. No need to change. But, the customers’ attitudes and preferences were changing, and M&S remained in the pot slowly coming to the boil.

Strategies, technology, policies and procedures that worked well during one period do not necessarily remain the correct route map forever. More staggeringly these organisations often do see trouble brewing and don’t act until things are desperate.

One of my theories is that lack of action (when clearly action is needed) stems from fear - fear of the risks associated with change, the hard work, and the tough decisions that accompany a change programme.

It is not for the faint hearted, particularly when things have been left to fester for too long. A lot then needs to be changed and if you have read John Kotter, a change management and leadership guru, the first principle is that you have to “establish a sense of urgency” into the process otherwise it is doomed to fail.

Another theory is that people are too lazy. Yes, any change programme involves a lot of hard work, particularly if no change or improvement has been made over a considerable amount of time. It requires energy, engagement and a willingness to dive in and get on with the job.

So, here are two final thoughts:

Firstly, if your organisation is in desperate need of change, throwing money at it is not necessarily the answer. Stand back, assess your situation, revise your vision and build a plan to start removing what does not work. Introduce innovation and quick-wins to help others see that the change is positive.

Secondly, once you have completed your change programme, remember that if you build change into your organisation in an evolutionary way, you won’t find yourself in a pot of slowly boiling water!

I found the past week a very interesting one. The government has now more or less confirmed that the charitable sector needs to increase its skill levels and performance if it wants to be at the table when future contracts are handed out. Why do I find this particularly interesting? Well let’s look at the past few years.

To start with, there was the funding provided by the Labour government under the auspices of ChangeUp, with a view to supporting the voluntary and community sector over a 10-year period. This had £231 million thrown at it with the following results (as stated by the National Audit Office). “Sustainability is a central part of the vision for ChangeUp. However, we found little evidence of consideration by support providers that they had put in place plans to ensure the sustainability of their services.”

Then there was the £100 million transition fund provided when the government slashed the various funding budgets to address the national budget deficit.

We saw the strategic grants from the Office for Civil Society being focused in on organisations that support the sector in their day to day activities such as ACEVO, NCVO, NACVA, Institute of Fundraising, etc. A mere £8.2 million for the next three years - and this is likely to increase, as there have already been further approaches from the organisations involved.

Last October saw the deadline for Community & Voluntary Services to bid for funds to enable them to transform themselves by July 2013 - a total of £30 million to improve the ability of organisations to provide front line services? With only nine months to go we should start to see great things from this money!

This autumn we see the government potentially moving to payment-by-results in response to some high profile evidence of poor service.

Perhaps the government could now cut to the chase and tell the sector exactly what it wants to see so that the funding taps can be turned back on. Or at least tell the sector what it would do if it is proved that there are skills and leadership problems within the sector.

The Office for Civil Society has now appointed Dame Mary Marsh to undertake a review of the sector’s leadership and skills. Well I think that says it all! We do indeed need to know where the sector is at and how it has dealt with the various crises in the past few years!

Or…and here’s a thought…perhaps the leaders of the sector themselves should be the ones to tell us how they’ve improved the sector over the last ten years – with all the funding that has passed through their hands over that time!

A third sector that is stronger and more able to adapt to change? Perhaps not? Either way I see the sector definitely having to step up its game and be able to justify its place at the table – now more than ever.

In the last few weeks there have been a couple of interesting articles (article 1, article 2) on how the NFP sector is either not taking advantage of certain types of investments or is not maximising its investment assets. The latter we definitely agree with! The facts speak for themselves, as I pointed out in my last blog.

So why is the charity sector not up to speed on this?

Well you could argue that over the past 10 or 12 years, before the recession kicked off in 2008, maximising resources was all a bit unnecessary, as money was flowing in, in some cases faster than we knew how to use it! Income streams were healthy and no one was thinking about what could be done to increase and maximise the sector’s potential during the good times.

Had we thought ahead the impact that is now being felt by the sector could have been lessened. Hindsight’s a great thing isn’t it? Hmm…

Or you could take the view that it is really important just now for the sector to act conservatively to safeguard what funds there are for future use. Hmm…

Or alternatively it could be that in general the sector just “doesn’t work this way” and that its approach is to keep it simple. Hmm…

Our view is that the sector is missing out on many opportunities because of all of the above.

Unfortunately for a number of organisations standing still with a head-in-the-sand approach is no longer an option. Progress is needed, and in some cases rapidly! However, when those same organisations are struggling to meet the day to day demands when on earth do they have time to do this? (The third sector in this regard is unlike the SME sector, which frequently has the resources to employ corporate finance advisory teams.)

But there is also another consideration, and that is that the sector is not at all well served by qualified and experienced professionals able to support organisations to raise finance, maximise their assets and ensure that their investments are working hard for them.

Why is this? Well, the reason is the same for both this and other sectors - short sight.

So perhaps a lesson to be learned from these recent articles is that the third sector needs now to exercise some foresight. To look further afield and ahead, not only in terms of the professionals currently serving it, but also in the way that it is being served.

The need for more creative, specialised and professional approaches to funding, investment and collaboration is going to be absolutely critical for our sector to continue to thrive.

During the past month as we were putting together our newsletter we found out some interesting facts and figures about the investment side of the UK charity sector. We’ve shared those in our newsletter but I wanted to devote a bit more space to them here.

You may have seen my blog “Recession, Whammes…Actions” on 25th April where I mentioned the impact that the decline in investment income and gains was having on organisations requiring funding.

The facts below show that overall total return for investments was down to 6.1% for the past year… but …the more interesting fact is that the larger charities and endowments were the main cause of the decline! You might think that this was due to their holding £14 million in cash but nope, that’s not the case. Proportionally the smaller charities held more cash than the larger charities.

In fact, had the big boys managed their funds like the medium size charities they would have generated more income, and grown their capital to be just about in line with inflation for the past year.

The third sector lost out to the tune of £1 billion in total because of the approach adopted by the larger charities. Now in a time of need it seems strange to me that the big charities are not focusing more on what they can deliver in the short to medium term. Let’s hope that their approach changes soon, as the sector can ill afford to lose another £1 billion!

Here’s what the sector might have done with additional £1 billion last year:

Retained 56,000 charity employees

Increased much needed workforce by 7%

Allocated 4% more on charity expenditure

Funded 87,000 charities for the next four years

Paid RBS bankers' bonuses!

What would you have done with it?

Oh … and by the way, our clients have achieved on average better results than the sector, with less volatility – so at least we can say that we have helped in the past year!

Back in 2009 I wrote a blog warning of the dangers of investing in China referring to it as the new Russia of the late 1990’s. Since then there have undoubtedly been improvements in the opportunities to invest in China…but…the big question is, should we?

As we entered a global recession there were parts of the world that still continued to grow - China being one of them. The reason? Under orders from the government, China's banks flooded the economy with credit in 2010, but much of that money has gone into speculation, and the China market looks set to produce a bubble in the near future.

Wage hikes in China set off a chain reaction throughout the region and China’s human rights record, although improving, as we know is still not great.

Here’s the question - as the G8 nations write off debt and interest payments to African nations ill-equipped to deal with them both politically and economically, are we prepared to stand by and watch China lend even more to these nations, so that they can develop a stranglehold on their resources in the future?

Africa, a group of nations exploited by the West for so many years, now looks like a very interesting location on the investment map, and we see China playing both the short and the long term games here, a trend to be both admired and feared!

But…what if China has a hard landing? Over the past ten years, the growth of the Chinese economy has undoubtedly empowered economies in both the developing and developed world as they have bought their way into manufacturing, production, and service delivery.

With a hard landing these and many more investments would stop dramatically - or at least be left for another day. The impact on western economies would be felt as the balance of trade drops off and demand for western goods manufactured in China declines.

The result?

If we don’t consider the impact of China on the world stage then we are likely to see the western world slow further, and struggle to shake off the malaise that has embraced it over the past four years.

When trying to predict the future there are always more questions than answers. China looks like a great bet at the moment, but when the bubble bursts - and it will - the impact will be felt by the world. What do you think?

The other day I had an interesting experience when I went to the bank to pay in a few cheques from clients, to be told they could not be accepted. Granted, it was not the branch where the account was held, but I thought it was very strange. The explanation given was that an RBS branch could not accept funds for NatWest (same group) unless special arrangements had been made. Of course I asked why. The response was "That is the way it is!"

Now considering all the problems there have been with Natwest systems etc over the past few weeks I should have anticipated a response along these lines!

However, what was more interesting was that there was no attempt to provide any assistance, no help with where the nearest NatWest branch was, no apology that they couldn't deal with the request, in fact a complete lack of customer service of any kind.

The government wants there to be more lending to stimulate the economy, we are told. Why on earth is it putting pressure on the two banks that effectively you and I own to do this, rather than having the Bank of England print more money. Why are these banks allowed to operate in the way they want to, with little regard for the customer? It would seem that neither the government nor we are in control ...but the banks are, as Robert Peston points out in his book "Who Runs Britain".

Isn't it interesting that, at a time when banks are getting such bad press, they aren't bending over backwards to be as helpful as possible? It seems they have taken the Bob Diamond approach to customers, suppliers, the FSA and government - Up Yours!

Hats off then to David Fishwick of Burnley Savings and Loans, who last year did the ultimate Up Yours, and decided he could do it better than the big boys. He created a bank which is truly run to benefit the customers, and proved that the finance industry can be both personal and socially responsible. Any profits, after the overheads are paid, are donated to charity.

I've recently been following a discussion on LinkedIn about Trustees and their role in leading strategy, and whether or not this should be the remit of the CEO.

The role of a Trustee is to set the direction of the charity and ensure that it works towards and achieves its objectives - which to me means working on the strategy of organisation. What is fascinating is that when you get involved in discussions about this, everyone immediately focuses on the "how' ...which is operational!

So where do you draw the line between strategy and operations? And who should point it out when the line becomes fudged?

A few years ago I ran a seminar on leadership in the charity sector focusing on the relationship between the Chair and the CEO. Over the course of about 18 months as we worked through this seminar we concluded that there is no clear way of defining their roles, as so much depends upon the culture of each individual organisation.

Surely sometimes the Trustees have to get operationally involved to understand what on earth is going on, but ...then they need to stand back and make informed decisions rather than try to fix the problems themselves.

This way they can retain their objectivity as well as scanning the horizon for different ways of approaching problems. What I do see as destructive is when Trustees do not step back, but continue to be operational - this is when trouble can brew.

So why do Trustees get involved operationally when strategic roles can be so rewarding?

I think the truth is that there's a comfort factor in operational roles, as these may well be where our experience lies in the day job either now or in the past.

One of the most difficult and exacting tasks is thinking about where an organisation should be going, and what it should be doing, rather than getting involved in the doing itself! Having said that, the strategic role can also be a frustrating and challenging one at times. For the most part, strategic decisions are long term goals and take time to see through (or are very quick and sharp and everyone knows about it!).

But either way, one of the most important things to consider, either as a Trustee or as an executive, is the role of the other party and how it is being impacted by your involvement... or lack of it!